The Commodity Futures Trading Commission (CFTC) has told Novig and ProphetX not to list some sports event contracts they have self-certified, including micro bets that could be susceptible to manipulation.
The agency ordered Novig not to list self-certified micro contracts, such as those based on which player will score the first points in a basketball game, and asked it to explain how the markets comply with federal law, according to a report from Front Office Sports (FOS).
A CFTC spokesperson confirmed that the agency sent letters to Novig and ProphetX, the other prediction market operator that received a similar directive.
“Any derivatives contract offered by a CFTC-regulated exchange must be compliant with the Commodity Exchange Act,” the spokesperson said in a statement. “The CFTC’s rejection of ‘micro trades’ today reflects a broader commitment from Chairman [Michael] Selig and the CFTC to protect consumers from potential fraud or manipulation. We will continue working with our registrants to ensure prediction markets offer the valuable information that they have for decades.”
Sources told FOS that the letters state both companies made false self-certifications. This means the firms intend to offer event contracts that may not be permitted under the Commodity Exchange Act (CEA), the federal statute that governs futures and options trading.
Leagues voiced opposition to these markets
According to one source, the Novig and ProphetX markets in question are the types of event contracts that drew the “most negative feedback” from professional leagues.
Last week, the NBA restricted the player props and micro bets that its sportsbook partners can offer, including wagers on which player will score the first basket of a game. These restrictions apply only to traditional sportsbooks and not to prediction markets, which the NBA has yet to formally embrace.
Sources said that other exchanges have expressed “frustrations” to the CFTC over its stance that prediction markets should not offer micro bets, since many state gambling regulators permit such wagers.
Senior CFTC officials have also held discussions with companies, including DraftKings and FanDuel, and told them that they could face similar action if they list micro contracts.
ProphetX contracts fall short of swap definition, regulator says
The agency informed ProphetX that its self-certified “scorigami” contracts do not meet the definition of a swap under the CEA. A scorigami takes place when a game ends with a final score that has never occurred before in the history of the sport.
A ProphetX spokesperson confirmed that the company received outreach from the CFTC. According to the spokesperson, agency staff “requested that we voluntarily defer listing the Scorigami contracts pending further review, not that we withdraw them.”
“We complied with that request and have since provided additional analysis supporting the contracts’ regulatory compliance and economic utility,” the spokesperson added. “We remain constructively engaged with staff.”
Self-certified contracts remain off the market
Under current rules, prediction markets such as Novig and ProphetX may self-certify contracts and list them without prior approval from regulators, although the CFTC can act afterward if it concludes that a particular market should not be permitted.
In this case, the companies self-certified the contracts but have not listed them, so users cannot trade on them at this stage. Both firms will have the opportunity to explain to the CFTC why the contracts should be allowed.
The CFTC declined to confirm whether this is the first time it has ordered a prediction market operator to remove a self-certified sports event contract. One source told FOS, “It’s kind of a warning shot” to prediction markets, and the move could foreshadow further action against other operators.
Selig’s cleanup precedes final rulemaking
Sources said the letters form part of a “broader cleanup” of the prediction market industry under Chairman Selig. Last month, FOS reported that the CFTC sent letters to several platforms, among them Kalshi, Polymarket, Rothera, and Novig, which sought information on their incentive programs. The agency took that step over concerns that some companies use misleading promotions to attract traders.
The regulator is conducting this effort before it issues an anticipated final rule that will clarify what is and is not permitted in the prediction market industry. In June, the CFTC published a 267-page notice of proposed rulemaking that would restrict in-game props, which allow users to predict outcomes such as the next pitch, and would limit markets on high school sports.
The letters instruct Novig and ProphetX not to list the contracts for now, but it remains unclear what measures the agency might take if the companies do not comply.